He got 5% of everything

Hello! This is Deep Pockets #12.

If you’ve been a follower of CelebrityNetWorth.com, you may have noticed that I’m particularly obsessed with telling stories about people who made tons of money off royalties.

One of the best examples is how, for years, Sting earned an average of $2,000 in royalties every day thanks to the song “Every Breath You Take.” That’s $730,000 per year without getting out of bed. The royalty stream ended in February 2022 when Sting sold the rights to his catalog for $300 million.

Or take Merv Griffin. Not only did Merv create the game show “Jeopardy,” but he also wrote the show’s iconic Final Jeopardy theme song, which is titled “Think.” In a 2005 interview, two years before he died, Merv revealed that up to that point, he had earned $80 million in royalties from “Think.” He also admitted the song took him just 30 seconds to write.

Even one-hit wonders can be set for life from a single creation. When Vanilla Ice was going through a divorce in 2018, his wife revealed that he still earns around $400,000 per year in royalties thanks to “Ice, Ice Baby.”

And while these examples are fun, royalties from a hit song won’t get you bottomless, insane, unfathomable generational wealth. And if you’re reading this newsletter, I assume that’s your goal. If you want bottomless, insane, unfathomable, generational wealth from a royalty, you’re going to want to study the example of Calouste Gulbenkian, better known by his royalty-referencing nickname, “Mr. 5%.”

DEEP DIVE: “Mr. 5%”

Calouste Gulbenkian was born on March 23, 1869, in present-day Istanbul, Turkey, but what was then called Constantinople, which was the capital of the Ottoman Empire.

Calouste attended private schools in France and England for his education. He graduated from King’s College in London in 1887 at the age of 18. A year later, Calouste traveled to the city of Baku, which today is the capital of Azerbaijan but at the time was part of the Russian empire.

Why Baku? To manage an oil field his father had recently acquired.

Oil was first discovered in Baku in the early 1800s, but the region didn’t become a powerhouse for the next seven decades. Up until the 1870s, oil that was taken out of the ground was collected in barrels. The barrels were then transported hundreds or even thousands of miles on the backs of DONKEYS. It was a slow, arduous, and expensive process. Each donkey could only carry one barrel. When the price of oil dipped below a certain point, as it did FREQUENTLY, transporting the barrels became more expensive than the oil itself.

That donkey transportation choke point was finally solved thanks to a pair of Swedish brothers: Ludwig and Robert Nobel. In the early 1870s, Ludwig and Robert bought a refinery in Baku using money partly raised from their brother Alfred Nobel, who had earned a fortune thanks to his invention… dynamite.

The Nobel brothers were the first oil explorers to lay pipelines that connected the oil fields to the shipyards. Removing donkeys from the equation altogether. That wasn’t their only innovation. They also invented a new kind of ship that featured a fortified hull that could connect directly to the pipes, allowing the oil to be stored not in barrels but free-floating in the belly of the ship itself. These new “oil tankers” could deliver oil around the globe at a fraction of the former transportation costs. These innovations turned the Nobel brothers’ operation into the second-largest oil company in the world at the time, behind only John D. Rockefeller’s Standard Oil. Thirdly, using their brother’s invention, dynamite, the Nobel brothers blasted through mountains to make room for trains to connect previously landlocked cities to the global markets.

Calouste Gulbenkian spent three years working in Baku. And while his primary job was to oversee his father’s investments, more importantly, he learned everything he could about the Nobel brothers’ revolutionary operation and the oil business in general. When he returned to France in 1891, Calouste published a book that detailed everything he learned about oil during his time in Baku.

Mesopotamia

Calouste’s book found its way to the desk of the Sultan of the Ottoman Empire. Impressed by what he read and excited that the author was Turkish by origin, the Sultan arranged for a meeting with Calouste, who was in his early 20s at the time.

The Sultan had a job for Calouste. With all of his knowledge and experience, could Calouste determine if there was any oil in a desolate Turkish-controlled desert area that was then known as Mesopotamia?

Calouste accepted the job and, amazingly, didn’t even have to visit Mesopotamia to get his answer. He studied the reports that had already been made and, more importantly, interviewed railroad workers who told him how oil gurgled out of the ground and formed large puddles along the train tracks in especially remote parts of the region.

Unfortunately, further exploration of Mesopotamia was put on hold as the Ottoman Empire began to collapse. Calouste retreated to London, frustrated and longing for a chance to prove his theory true.

In 1907, a pair of brothers named Marcus and Samuel Samuel (their last name was Samuel, and one of the brothers was literally named Samuel Samuel) approached Calouste with a proposition to partner up to get a claim to finally explore Mesopotamia for oil. The Samuel brothers had a connection to the region. Before becoming a successful importer, their father started as a dirt-poor immigrant from Mesopotamia. Once he arrived in London, the father’s first source of income was selling knickknacks made out of seashells he found at the beach. In honor of their father, when the brothers created their own trading company years later, they called it Shell Transport and Trading.

Invigorated by the prospect of… prospecting for oil in Mesopotamia, Calouste agreed to join the Samuel brothers. But he also had a suggestion. To be successful, he knew they would need a deep-pocketed corporate partner. At his urging, the Samuel brothers merged their company with the Dutch Petroleum Company. The resulting company was renamed:

Royal Dutch Shell

The new company’s logo was also an homage to the Samuel brothers’ immigrant father, a seashell:

With control of the area’s rights in flux due to the fall of the Ottoman Empire, Calouste, and Royal Dutch Shell realized they would need the buy-in of both the British and German governments to get their venture officially sanctioned. To solve this issue, they formed yet another company, this one called the Turkish Petroleum Company (TPC). In 1912, when TPC was formed, the equity ownership was awarded as:

• 25% = Royal Dutch Shell

• 35% = British government interests

• 25% = German government interests

• 15% = Calouste Gulbenkian personally

Note that Calouste was initially given 15%. So why would he later earn the nickname “Mr. 5%” and not “Mr. 15%”? Because the above partnership fell apart almost immediately with the onset of World War I. Once again, Calouste Gulbenkian’s dream of extracting Mesopotamia’s oil was put on pause.

When WWI ended in 1918, the Dutch and British partners in the Turkish Petroleum Company saw two seemingly easy opportunities to maximize their equity stakes in TPC. First, the Germans were out. That was obvious. Second, this random Turkish guy, who supposedly owned 15% of their company, also had to go. What was he gonna do? One little nobody vs. two massive governments that just won WWI? Calouste was cut out.

But Calouste wasn’t going down without a fight. He called in every favor he had ever accrued and arranged a meeting with the oil minister of France. During that meeting, Calouste planted the idea that France had a perfectly fair case for taking their own share of TPC. The French government agreed. After all, France had suffered more than just about any other country during the war. The British and Dutch relented.

As a reward for his efforts in getting them into the partnership, France rewarded Calouste with…

5% of the Turkish Petroleum Company

That royalty guaranteed Calouste Gulbenkian a 5% royalty on all revenue generated by oil found in Mesopotamia. So what was Mesopotamia, and was there any oil there after all?

Well, today, you probably better know Mesopotamia as…

.

.

.

.

.

Iraq

And did they find oil? Uhhh, ya. As it turned out, the deposits under the surface of Iraq held the world’s fifth-largest supply of oil behind only Iran, Canada, Saudi Arabia and Venezuela.

Over the next four decades, Calouste got 5% of all the revenue generated from the sale of Iraqi oil.

During his lifetime, that 5% royalty translated into billions of pre-tax dollars for Calouste Gulbenkian. That little 5% royalty made him one of the ten richest people in the world at the time of his death in 1955.

The royalty checks kept pouring in even after his death. But not for much longer. In 1961, the Turkish Petroleum Company was rendered defunct when the Iraqi government enacted Law No. 80, which ended 99.5% of all oil concessions in the country, effectively nationalizing the Iraqi oil industry.

During his life, Calouste amassed a vast collection of priceless art that included masterpieces from artists like Renoir, Rembrandt, Degas, and Rodin, as well as one of the most impressive private collections of art from the ancient Middle East, China, and Japan.

At the time of his death in 1955, Calouste Gulbenkian’s net worth was $800 million. That’s the same as around $9 billion in today’s dollars after adjusting for inflation.

For most of his adult life, Calouste intended to leave half his fortune to his three children and half to a charitable foundation that would be established upon his death. After a disagreement with one of his kids, he decided to leave the entire fortune to what would become the Calouste Gulbenkian Foundation. What kind of disagreement inspired such a change? Calouste’s son Nubar spent many years working without salary in his father’s business. One day, Nubar had lunch at a restaurant. He ordered chicken in tarragon jelly. The bill was $4.50. Nubar submitted his receipt to the company to be reimbursed. The company refused. That refusal was the last straw, and Nubar launched a $10 million lawsuit against his father and the company. That lawsuit is what caused Calouste to change his will. Nubar and his siblings did ultimately each inherit several million dollars, but they could have each had around $133 million 🫠 

Today the Calouste Gulbenkian Foundation has over $4 billion worth of assets under management, which makes it one of the 40 richest philanthropies in the world. The foundation is roughly the same size as Michael Bloomberg’s foundation and the Rockefeller Foundation.

Today, his vast art collection is housed in the Calouste Gulbenkian Museum in Lisbon, which is considered the best museum in Portugal.

FINAL WORD

On the next edition of “Deep Pockets,” we’re going to tell you what happened to Alfred Nobel, the Nobel brother who became known as the “merchant of death” thanks to his invention, dynamite.

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